America’s First Failed State, By Bill Bonner, Chairman, Bonner & Partners
Illinois is in trouble. It has $14.6 billion in unpaid bills not including a pension liability of $130 billion. The state is running a $6 billion deficit, and its government is dysfunctional, operating without a budget for two years.
Illinois is America’s first failed state. Our guess is that it won’t be the last, which causes us to reflect, briefly, on what’s ahead.
A Model of Financial Integrity - Government is always a way for the few to exploit the many. But since the widespread use of cheap guns and cheap newsprint, the few have had to bribe, bully, and bamboozle the many in order to hold on to power. They call it democracy.
Typically, states borrow and make promises pushing the costs into the future. Two years ago, Forbes estimated total unfunded pension liabilities of all states at $3 trillion. And that excludes local government obligations such as those of U.S. cities and counties.
Typically, too, state and local governments have to balance their budgets. Like families and private companies, they only have so much credit available. That means they must work with real money, not fake credit dollars.
Real money limits the ability of the government to tax, borrow, and spend, which also limits the size of the inevitable problem. Fake money is easier to get your hands on and easier to promise, especially if you can print it yourself.
That’s why national governments can dig themselves into much deeper holes and it’s why, compared to the U.S. government, Illinois, with its paltry $130 billion pension liability, is a model of financial integrity.
The feds have promised some $200 trillion in pension and medical benefits, all of it unfunded. These promises are win-lose deals. The win happens when the promises are made. The lose doesn’t come until the bills come due.
In Germany in the 1870s and 1880s, explains a colleague, Bismarck set up a great system. The older generation wins. The young lose. It works great as long as the population is growing. Young people believe they will be winners when they get older.
But now, German women don’t have enough children to even maintain the population. There’s no way to pay for all the benefits that have been promised. They’re counting on immigrants. But that’s not going to work.
Bill Bonner's Diary
Norb Leahy, Dunwoody
GA Tea Party Leader
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